This behavior has been even more evident with programmatic companies who have been working closer with their data counterparts. These data cooperatives also compete in the advertising ecosystems. A few of these partnerships have even recently led to mergers and acquisitions.
Network effect, also called demand-side economies of scale, comes into play in programmatic, when one good bid for inventory or impression leads to value for other campaigns or products. When the effect scales positively, the value of the media product or service is dependent on the number of others using it. Some explain the network effect is scaling slow, but in today’s programmatic world the positive results scale quickly to help the majority of the media based on networked optimization.
After critical mass has been achieved the network effects become significant and even more positive. The key is to quickly get the confidence of the advertiser before critical mass is achieved. One company recently used ads that “learn” to highlight the network effect upon critical mass. This is similar to what is referred to as learning loops. Network effects work best in open environments or with the law of big numbers.
Open systems lead to standards and transparency of bidding prices, costs and performance. Recently, many industry leaders have been calling for more of the closed proprietary systems to open up more than simple API’s. In markets or exchanges with high amounts of liquidity, we can generate more efficient outcomes for both sellers and buyers in a transparent open market. The current programmatic systems, business rules, and processes are not designed today to deliver transparently like a financial market. In order for an auction process to be transparent, the fees, net CPMs, and the bidding process itself is open to allow market and network effects to help the marketplace. Many closed systems like Xaxis, RocketFuel, Criteo and others are opening up for both public and private exchanges.
Too much data and information (TMD or TMI) is leading to “data obesity.” An open programmatic marketplace will allow more people, companies and technology to help reduce big data by using smart data mining techniques or data surfacing methods to reduce the size of the big data. They can then use it in the programmatic marketplace for better media performance and optimization.
Premium programmatic growth is happening thanks to open environments. New partnerships between digital media companies are also solving a big piece of the puzzle. Understanding network effects and harnessing its power is helping open the window to premium programmatic. Transparency is helping the young programmatic marketplace to learn from others like financial. Too much data or big data is being tamed and helping performance like never before. We are finally getting comfortable today being open and also letting the network do some of the work.